US, Singapore funds keen to invest in PH Reits

FUND managers and investors from the US and Singapore have expressed interest in investing in real estate investment trusts (Reit) in the Philippines and Indonesia due to the bright real estate market outlook in both countries and despite pending amendments to the local Reit law, the Securities and Exchange Commission (SEC) reported.

SEC chairperson Teresita Herbosa told reporters late Friday that a Singaporean company recently met with the commission, stating their US clients’ strong interest in investing in Reits in the Philippines.

A real estate investment trust is a company that uses pooled funds from investors to finance acquisitions of properties and assets that can yield income over time.

The formation of Reits has been stalled in the Philippines, however, due to tax and public ownership issues that are viewed as unfavorable to investors, and may be amended.

“They wanted to invest in Reits here because according to them, Indonesia and the Philippines have the best market outlook. And the fact that here in the Philippines there is already a law, so it’s just a matter of [taking]steps to realize this,” Herbosa said.

Major property developers such as SM Prime Holdings Inc., Ayala Land Inc. and Megaworld Corp. have expressed interest in forming Reit vehicles, as these would give investors the option to put their money in actual projects, rather than the usual investments made in a property company.

But these firms raised taxation and public ownership concerns with the current Reit Law (Republic Act 9856), which Herbosa said she is committed to reform as soon as possible.

The SEC said that it would bring down the public float requirement to 33 percent from the current 40 percent, which would answer some of the current complaints about the law.

The Bureau of Internal Revenue (BIR), however, has yet to agree to remove the 12 percent value added tax (VAT) on initial property transfers to Reits, which is the other significant complaint about the current law.

“I already made a commitment to the public that I’ll bring down [public float requirement]to 33 percent. We’re willing to do that already but the problem is there is still an issue on the VAT, which is handled by BIR,” Herbosa said.

The SEC chair said she is planning to write a letter to the Department of Finance (DOF) this month to immediately address the VAT issue on property transfers.

The BIR is concerned that with the removal of tax on transfers, the government will have a problem raising state revenues.

“I intend to write a letter this November to the Secretary of Finance because Finance is on top of the BIR,” Herbosa said.

“We’re willing to already adjust the public ownership to 33 percent. The only thing the firms are still complaining about was the VAT. But we found a study [in Asean]which shows VAT removal will not affect the revenues that the government can collect from the earnings of the Reit,” she added.

So far, only Calata Corp. has made solid plans to put up a Reit firm, called Calata Land Inc., which will be used to acquire land to be leased out to foreign partners in building Mactan Leisure City, a planned 14-hectare integrated casino and resorts complex which will be jointly owned by the Calata and Sino Group.